Blog
Law Offices of Chance M. McGhee

Call Today for a FREE Consultation

210-342-3400

How Should I Handle Creditor Harassment After a Bankruptcy Filing?

October 15th, 2020 at 8:39 pm

TX bankrutpcy attorney, Texas bankruptcy lawyerWhen you file for bankruptcy, you are granted an automatic stay on most of your debts. Essentially, this means your creditors cannot contact you or attempt to collect the debt. What happens, though, if the creditor keeps calling and harassing you through the mail, at your work, or at your home? Rest assured: you can enforce the protections that bankruptcy offers.

When Contact Is a Genuine Oversight

All creditors know (or should know) that a bankruptcy filing means they must cease all contact with you, as the debtor. As such, most who violate this rule have simply done so due to an oversight. Perhaps they did not remove your name from the system properly, or they have not received the paperwork yet that notifies them of your filing. In any case, it is important that you not overreact or panic during the initial contact from a creditor. Instead, simply inform them that you have filed for bankruptcy and politely refer them to your attorney.

If the contact was made by phone, document the date and time of the call, the agent’s name and extension number (if applicable), and the creditor’s name and phone number. If the contact was by mail, copy or scan the mailing (after you have written a response that indicates your bankruptcy filing and your attorney’s number). This information gives you proof of contact and ensures you can take action if the contact continues or escalates.

When Your Notice Is Ignored

If you have already notified a creditor of your bankruptcy filing and have referred them to your attorney, and they still call or otherwise attempt to contact you, it is time to take the next step. Again, you should document the contact, but this time, forward the information to your attorney. Let your lawyer know that you have already notified the creditor of your filing and that you have provided them with the attorney’s number. From there, your attorney will likely contact the creditor and let them know they are in violation of the stay order.

If the creditor continues to contact you, even after you have spoken with your attorney, do not lose your temper. Instead, let your lawyer know the dates and times of the phone calls or letters. If necessary, he or she can summon the creditor to court. At the very least, the creditor may be reprimanded and instructed by the judge not to contact you. Some may also be subject to fines and/or punitive damages. Your attorney can walk you through the process and your options.

Contact a Texas Bankruptcy Lawyer

Filing for bankruptcy is not an easy decision. Creditor harassment after you file does not make it any easier. Thankfully, you can have the Law Offices of Chance M. McGhee on your side. Dedicated to protecting your best interest, our experienced San Antonio bankruptcy attorney can take quick and effective action to stop creditor harassment. Because we care about your future, we even provide guidance on how to make the most of your new start. Get the quality representation you deserve. Call 210-342-3400 and schedule your free consultation with us today.

 

Sources:

https://www.forbes.com/sites/christopherelliott/2018/07/18/how-to-protect-yourself-from-debt-collectors-and-debt-collection-scams/

https://www.thebalance.com/when-creditors-do-not-stop-calling-after-bankruptcy-4156787

Prevent Fraud Challenges on a Credit Card Debt

October 12th, 2020 at 7:00 am

  

Very recent credit card purchases and cash advances can be a problem when filing bankruptcy. Smart timing can mostly solve this problem.


Last week’s blog post introduced the so-called “presumptions of fraud” in bankruptcy. Today we get into dealing with this issue through smart bankruptcy timing.

Bankruptcy Timing to Avoid the Presumption of Fraud

Here’s the key point: you greatly increase the risk that you’ll still have to pay a credit card debt if you file bankruptcy too soon after incurring that debt. You risk still having to pay the purchase(s) and/or cash advance(s) recently incurred. You may still have to pay that part of that credit card debt in spite of bankruptcy.

But you can avoid much of that risk by timing your bankruptcy right. The presumptions of fraud are in effect for only a relatively short period of time after you make the purchase or cash advance. You avoid the presumption of fraud simply by filing bankruptcy after that short period of time has passed.

The Presumption Period for Credit Card Purchases

The presumption period of time for purchases is 90 days from the time of each purchase. It only applies if the purchase(s) made within that 90-day period exceed(s) $725. (U.S Bankruptcy Code Section 523(a)(2)(C)(i)(I), with that $725 dollar amount valid from 4/1/19 through 3/31/21.)

So what happens if you file bankruptcy within 90 day after making a large enough credit card purchase(s)?

Maybe nothing bad would happen. The creditor may not challenge the discharge (legal write-off) of the debt on that purchase. Then bankruptcy would discharge that debt regardless when you made that purchase.

Or the creditor could challenge the discharge of that recently incurred portion of the debt. It could assert that you made the purchase within the 90-day presumption period before filing. The creditor could make this challenge in one of two ways.

First, it could contact your bankruptcy lawyer about its intent to raise this challenge. Or second, the credit card creditor could make the challenge directly in bankruptcy court. It would have its lawyer file a narrowly-focused legal proceeding asking that the debt not be discharged.

Your Response with Contrary Evidence

Either way, then you’d have a chance to push back. Just because your purchase(s) fall within the 90-day presumption period does not necessarily mean you’ll have to pay the debt. Remember that the whole debt is usually not at issue, only the purchase(s) made during the 90-day presumption period.

Beyond that, the presumption is just that and no more. It’s an initial presumption that you did not intend to pay the debt when you made the purchase. When you incur a debt you are promising to pay it. If you incur that debt without intending to pay it, the law treats that as a fraudulent misrepresentation. The law presumes that if you made a purchase within the presumption period you didn’t intend to pay it. The creditor can and likely will win on that presumption if you don’t push back.

But you can push back. You can respond, with your bankruptcy lawyer’s assistance, that you actually did intend to pay the debt on the purchase(s). First, you can simply testify that your honest intention at that time was to pay that debt. Then you can back that up perhaps by saying you were not intending to file bankruptcy at that time. You didn’t decide to file and write off the debt until after you made those purchases. You can even bring up what event(s) pushed you into deciding to file bankruptcy after making the purchases. (This all of course assumes that these facts are true.)

In other words, you can defeat the presumption of fraud with evidence of no fraud.

Then the creditor may be convinced and could back down completely, and withdraw its challenge. Or it can negotiate a settlement, with both parties agreeing that you pay something, less than the amount the creditor wanted. Or, both sides could stand fast and have the bankruptcy judge decide whether and/or how much you would pay.

The Presumption Period for Cash Advances

The presumption of fraud for recent cash advances works the same way as with recent credit card purchases. There’s just a tweaking of the details. The presumption period of time for cash advances is 70 days from the time of each cash advance. (Not 90 days.) It only applies if the cash advance(s) made within that 70-day period exceed(s) $1,000. (Not $725.) (Bankruptcy Code Section 523(a)(2)(C)(i)(II), with the dollar amount valid from 4/1/19 through 3/31/21.)

Everything stated above about how the credit card presumption of fraud for purchases works applies to cash advances too. Most importantly, the creditor has to raise the presumption or else it has no effect. And if the creditor does so, you still have the opportunity to refute and defeat the presumption. That is, you and your bankruptcy lawyer can present evidence that you had intended to pay the debt at the time you made the cash advance(s).

Bankruptcy Timing and These Presumptions of Fraud

Besides being able to defeat these two presumptions of fraud, you can usually avoid them altogether. You do so by waiting to file bankruptcy past the 70- and 90-day presumption periods.

Sometimes waiting is easy. But in many circumstances time is not on your side. You are   with pressure from creditors. You may have received a summons and complaint from a creditor. You may have your paycheck being garnished. Or you may have a vehicle at the risk of repossession or a home at risk of eviction or foreclosure.

Also, while you’re waiting to file bankruptcy bad things can happen that you don’t expect. The IRS or state tax authority may record a tax lien. A creditor lawsuit you don’t even know about could turn into a judgment against you. A creditor may try to take some other unexpected action against you or your possessions.

Deciding whether to delay filing bankruptcy to get past a presumption period is a balancing act requiring legal advance. It usually involves balancing several considerations and then making an informed choice about your best timing. You really cannot make the best judgment call on this without a bankruptcy lawyer’s thorough knowledge and experience.  

Beyond the Presumptions to Regular Fraud

Another reason that legal advice is necessary is that the presumptions of fraud are not the end of the story. The presumptions are a tool that gives credit card creditors a modest advantage. But creditors can certainly raise fraud and misrepresentation-based challenges without that advantage. This applies to credit card creditors and essentially all creditors. If a creditor believes that the facts bear this out, it can try to argue that you incurred its debt with bad intentions of various sorts. This can happen regardless that the debt was incurred longer than 70 or 90 days before your bankruptcy filing.

Without getting into this more here, the point is that avoiding the presumption periods doesn’t necessarily mean you’re safe. A person could certainly make a credit card purchase or cash advance 6 months before filing bankruptcy with no intent to pay that debt. Or whenever. If a creditor believes that you incurred a debt under fraudulent circumstances, whenever that happened, the creditor could raise a challenge.

Rest assured that these challenges—with or without the presumptions—do not happen in most bankruptcy cases. Your lawyer will help you anticipate any such challenges. Then he or she will give you advice to prevent and, if necessary, defeat any such challenges.

 

Smart Timing with the Presumptions of Fraud

October 5th, 2020 at 7:00 am

You can avoid the presumptions of fraud, and so discharge more of your credit card debts, by timing your bankruptcy filing right.   

 

This blog post continues a series about the smart timing of your bankruptcy filing started back in July. (It’s been interrupted by urgent blog posts related to the pandemic—about unemployment benefits and the federal eviction moratorium.) The last in this timing series was about how bankruptcy timing helps with income tax liens.

Important Examples of Good (and Bad) Timing

Since it’s been so long since we introduced this, here is a list of some of the main consequences of good and bad bankruptcy timing. Whether:

  1. the bankruptcy case includes recent or ongoing debts or not
  2. you have to pay an income tax in full, in part, or not at all
  3. you must pay interest and or penalties on an income tax because of a tax lien
  4. you can discharge (legally write off) a credit card debt, or a portion of it
  5. you can discharge a student loan debt
  6. you qualify for a vehicle loan cramdown—reducing monthly payments, interest rate, and total debt—and still keep the vehicle
  7. you qualify for a personal property collateral cramdown—paying less—and still keep the collateral
  8. you stop the repossession of your vehicle in time, or lose it to the vehicle loan creditor
  9. you prevent the foreclosure of your home in time, enabling you to catch up over time
  10. you get more time to sell your home, including possibly years more
  11. you qualify for a Chapter 7 case under the “means test,” or instead must file under Chapter 13
  12. you qualify for a 3-year Chapter 13 payment plan or instead must pay for 5 years
  13. your sale or gifting an asset is a “fraudulent transfer
  14. your payment to a friendly creditor is a “preference” and must be returned
  15. you can keep all of your assets if you’ve moved from one state to another in the past several years

We give you this list again here to give you an idea how important the timing of your bankruptcy can be. There’s a good chance that one or more apply to you. If they do, to learn more, please call a bankruptcy lawyer to see how these apply to you.

We covered #3 about income tax liens in a number of blog posts. Today we start into #4: how bankruptcy timing affects the discharge of credit card debts.

Avoiding a “Presumption of Fraud” through Good Timing of Bankruptcy

A main goal of bankruptcy is to forever discharge your debts. Under limited circumstances a creditor can challenge your ability to discharge a debt. One of those circumstances involves the length of time between when you incurred the debt and when you file bankruptcy. If you file bankruptcy too soon after incurring the debt its creditor may more easily be able to challenge your ability to discharge that debt. There’s a “presumption of fraud” regarding that debt, or the portion that was incurred shortly before the bankruptcy filing.

What “Fraud”?

There’s a basic principle in bankruptcy law about honest debtors. People should generally be able to discharge their honestly-acquired debts. But debts acquired by being dishonest with creditors should not be discharged.

The dishonesty at issue here involves lying to qualify for or to use credit. Examples are giving false information when applying for credit or writing a check that you know will not be good. Or using a credit card for a cash advance or purchase that you never intend to pay. The creditor who you owe on a debt incurred like this could try to prevent you from discharging its debt. Its grounds for challenging the debt discharge would be that you incurred the debt through dishonesty or fraud.

(Note that most people acquire their debts honestly. So their creditors don’t have grounds for objecting to the discharge of the debts. This includes credit card creditors. So creditor challenges to the discharge of debts are relatively unusual. The point is that you can act appropriately to minimize such challenges by your creditors.)

What’s a “Presumption of Fraud”?

Dishonesty and fraud are hard for a creditor to prove. That’s because they requires evidence of a debtor’s bad intentions. The creditor has to show evidence that a person got or used credit through dishonest intention.

Because banks have a lot of influence over the laws, the Bankruptcy Code contains “presumptions of fraud.”  These acknowledge that it’s difficult to get into the minds of debts to know their good or bad intent. These “presumptions” presume bad intent under certain factual circumstances. When these factual circumstances are met, the law presumes that the debt at issue is fraudulent. That is, that the debt will not get discharged in bankruptcy.

However, the debtor can then present other evidence that the debt was in fact honestly incurred. That evidence may convince the creditor to drop the challenge. Otherwise a bankruptcy judge weighs the evidence. He or she determines whether the debtor incurred the debt honestly and thus whether to discharge the debt.

So, a “presumption of fraud” makes it easier for a creditor to establish that a debt is fraudulent. The creditor needs less evidence. It will win unless the debtor responds and convinces the creditor and/or the judge that it was an honest debt.

The Factual Circumstances for the “Presumptions of Fraud”

There are two sets of facts in which a creditor doesn’t need to provide evidence of a debtor’s dishonest intention. Fraud is presumed to have occurred.  A creditor just needs to show that the set of fact are met—that certain facts are true.              

These facts involve the timing and amount of a credit card purchase or cash advance.

The first set of facts: buying more than $725 in “luxury goods or services” from any single creditor during the 90-day period before you file your bankruptcy case. “Luxury goods and services” applies to just about anything which isn’t a necessity. A debt of more than $725 incurred in the 90 days before filing bankruptcy is presumably fraudulent. That means bankruptcy will not discharge that debt. (Again, this assumes the debtor does not challenge and prevail against this presumption.) See U.S Bankruptcy Code Section 523(a)(2)(C)(i)(I), with the dollar amount adjusted and valid from 4/1/19 through 3/31/21.

The second set of facts: making a cash advance of more than $1,000 from any single creditor during the 70-day period before you file your bankruptcy case. Such a cash advance would be presumably fraudulent, and bankruptcy would potentially not discharge that debt. Bankruptcy Code Section 523(a)(2)(C)(i)(II), with the dollar amount adjusted and valid from 4/1/19 through 3/31/21.

The rational basis for these presumptions is that filing bankruptcy so soon after incurring such debts likely means you didn’t intent to pay them. Again, that assumes you don’t give convincing evidence to the contrary.

Bankruptcy Timing and These “Presumptions of Fraud”

Notice how precise the timing is in these two presumptions. They apply only if you file bankruptcy within the applicable 90-day and 70-day periods after incurring the debts. So you can altogether avoid these presumptions of fraud by simply waiting to file bankruptcy until after those periods of time have passed.

This blog post is already way too long. So next week we’ll look at some practical aspects of timing your bankruptcy in light of these presumptions of fraud.

 

Common Myths About Bankruptcy in Texas

September 29th, 2020 at 9:52 am

Texas bankruptcy lawyer, TX chapter 7 attorneyAt our firm, we help clients every day with questions and concerns about the bankruptcy process under the U.S. Bankruptcy Code. Our experience has shown us that bankruptcy proceedings are often misunderstood, and unfortunately, misinformation abounds among those considering filing for bankruptcy. If you are thinking about bankruptcy as an option for your situation, it is very important for you to fully understand the potential advantages and disadvantages, as well as what might happen after the proceedings are complete. With this in mind, here are three of the most common myths about bankruptcy, along with the truth about each one.

Myth # 1: My Employer Will Be Notified That I Filed for Bankruptcy

Financial struggles are embarrassing for many people, and the reasons are understandable. As a result, it might be humiliating for you if your employer were to be notified of your bankruptcy filing. The good news is that this myth—albeit common—is just that: a myth. The bankruptcy process does not involve any employer notification whatsoever unless you happen to owe a formal debt to your employer somehow—in which case your employer would be notified, but as a creditor. Bankruptcy filings are public record, which means they could technically be published by the press, but it is unlikely that your employer would have much interest in searching through such publications.

Myth # 2: I Will Never Get Credit for a for a Major Purchase Again

Filing for bankruptcy can certainly have a negative effect on your credit rating, but the effects are temporary. Your bankruptcy will not bar you from ever having the ability to secure credit for major purchases like a home or automobile. For most bankruptcy filers, the credit approval needed to secure a home loan would be possible in about two to three years from the date of their bankruptcy filing. Obtaining approval for car loans and credit cards generally take less than two years. What is most important in re-qualifying for credit is making sure that you are rebuilding your credit properly in the period following your bankruptcy filing.

Myth # 3: I Do Not Have Enough Debt to Qualify for Bankruptcy

The bankruptcy process does not require any minimum amount of debt for a party to be able to file a petition for bankruptcy. While it is not prudent to initiate the process of bankruptcy without a reasonable amount of debt, what constitutes a “reasonable amount of debt” can vary widely from one situation to another. If you can demonstrate that your ability to manage your debt is severely diminished, it is likely that your bankruptcy petition will be accepted by the court. Keep in mind that if you are filing for Chapter 7 bankruptcy protection, you will need to undergo a means test to determine your ability to pay your debts.

Speak with a New Braunfels Bankruptcy Lawyer

The finances of many hardworking individuals have been severely impacted by the COVID-19 lockdown of the last few months. If you are in an unmanageable financial situation due to debt, filing for bankruptcy may be an option. Contact a knowledgeable San Antonio bankruptcy attorney to learn more about the different types of bankruptcy protection that might be available to you. Call 210-342-3400 for a free consultation with the Law Offices of Chance M. McGhee today.

 

Sources:

https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics

https://www.nerdwallet.com/article/finance/rebuild-credit-after-bankruptcy

Federal Eviction Moratorium Update

September 28th, 2020 at 7:00 am

The current federal eviction moratorium comes with a number of qualifications and conditions. Be aware of them. It’s a limited but helpful tool.

 

Our last three weekly blog posts have been about the new Agency Order temporarily stopping many residential evictions. This Order by the Centers for Disease Control and Prevention (“CDC”) went into effect on September 4, 2020. It expires on December 31, 2020, when all unpaid rent will be due and evictions can resume.

Three weeks ago we described this eviction moratorium. Two weeks ago we discussed how renters could get more benefit from the moratorium with a Chapter 7 “straight bankruptcy.” Last week we got into how Chapter 13 could help significantly more. This week we provide additional important practical information.

Exceptions to the Eviction Moratorium

The CDC’s evictions ban did not cover all possible evictions. As a renter you need to make sure that you qualify and take the right steps to avoid being disqualified.

First, as emphasized last week, you must complete and give your landlord a Declaration form to trigger the eviction ban. Otherwise you do not qualify for the moratorium.

Second, you sign that Declaration under penalty of perjury. If you are not truthful, you’d expose yourself both to criminal liability and to eviction. So make sure you meet the stated income and other qualifications.

Third, the Declaration requires you to make “timely partial payments” as much as you can afford. You can’t necessarily just stop monthly payments altogether. In fact “timely” indicates that you should try to make partial payments when the regular rent payments are due each month. But what determines whether and how much you can afford to pay? The CDC’s Agency Order says you must use your “best efforts.” The “partial payments [are to be] as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses.” This is all quite vague. But if you can afford to pay something and you don’t, your landlord has potential grounds to evict regardless of the moratorium.

Fourth, the Declaration makes you liable not just for rental payments, but also for “other obligations that I may have under my… lease agreement… .” This includes “fees, penalties, or interest for not paying rent…  on time… .”  These “may still be charged or collected.” Presumably this means landlords can collect these additional charges only after the moratorium expires, so starting January 1, 2021. But don’t lose sight of these add-ons—they can really add up.

Evictions for Other Reasons

The Agency Order states clearly that even if you otherwise qualify and deliver a truthful Declaration, your landlord could still try to evict you “for reasons other than not paying rent….”

Some but not necessarily all such reasons include:

(1) Engaging in criminal activity while on the premises; (2) threatening the health or safety of other residents; (3) damaging or posing an immediate and significant risk of damage to property; (4) violating any applicable building code, health ordinance, or similar regulation relating to health and safety; or (5) violating any other contractual obligation, other than the timely payment of rent or similar housing-related payment (including non-payment or late payment of fees, penalties, or interest).

85 Fed. Reg. 55,294 (Sept. 4, 2020).

You need to be mindful of these other reasons for eviction that defeat the moratorium. However, also note that landlords face a significant risk if they violate the Agency Order by trying to wrongfully evict you. These include significant fines ranging from $100,000 to $500,000 per event, and even possible imprisonment. These penalties should discourage frivolous attempts by landlord to evict with invalid justification.

Expired or Lack of Lease Agreement, Subtenants

Three common situations are not addressed directly by the Agency Order.

First, you may have signed a month-to-month lease agreement with a one-year term, but continued on after that one year. The landlord and you essentially assume that you both continue to be bound by the lease agreement. But legally it’s clearly expired. Assume you’re not paying rent because of the moratorium, but the landlord has somebody else who can afford the rent. Can the landlord evict you without violating the moratorium because you have no valid lease agreement? It’s certainly plausible.

Similarly, what if your lease agreement expires at the end of this month? Presumably the landlord is under no obligation to renew or extend the agreement. So he or she may be able to evict you in spite of the moratorium.

What about verbal lease agreements? Or month-to-month ones in which both parties can legally end that lease at any point. Seems like the landlord could have the right to end the agreement and evict in spite of the moratorium.

Finally, many people are subtenants who are not on the original lease agreement. So they don’t have a direct relationship with the property’s landlord. Similarly, a number of residents may live under a lease signed only by one of the housemates. If you don’t have renter’s rights because you are not the legal renter, the moratorium does not apply to you. If the renter on the agreement does something allowing the landlord to evict him or her, the moratorium will not likely help you.

Conclusion

The federal eviction moratorium gives you a potentially helpful additional tool during these intensely challenging times. But you have to act to qualify for it. And there are various conditions and exceptions you’ve got to be aware of.

In addition, the eviction moratorium is just one tool of many. It may best be used in conjunction with a range of bankruptcy tools. See a bankruptcy lawyer to find out how to use all the available legal tools to help you meet your goals.

 

Chapter 13 and the Eviction Moratorium

September 21st, 2020 at 7:00 am

Use Chapter 13 to catch up on back rent that piles up during the eviction moratorium, so that you can stay in your rental long term. 

 

Our blog post two weeks ago was about a recent federal order temporarily stopping certain residential evictions throughout the country. Check out that blog post to see who is covered and how to take advantage of this eviction moratorium.

Asserting Your Right Not to Be Evicted

Assuming you qualify, you must act to assert your right not to be evicted. This mostly means you need to print up, review, sign, and give your landlord a two-page declaration form. Here is that Declaration form.

The Declaration starts with a quick explanation for how to use it, then lists the qualifying conditions you must meet. You have to be truthful about qualifying for the conditions, so read those carefully. You sign under penalty of perjury. So, “you can be prosecuted, go to jail, or pay a fine if you lie, mislead, or omit important information.”

Also, every adult renter included on “the lease, rental agreement, or housing contract should complete” it. Then get it to your landlord.

Important: as broad and clear the moratorium may seem, it is being interpreted differently by different state and local judges. For example, some judges believe that landlords can’t file eviction lawsuits at all. Others believe that they can be filed and processed, with only the eviction itself stopped by the moratorium. See this New York Times article about these inconsistencies: How Does the Federal Eviction Moratorium Work? It Depends Where You Live.

The Challenge Created by the Moratorium

Let’s assume you qualify and deliver the Declaration to your landlord. The big problem with the eviction moratorium is that it is temporary. It expires on December 31, 2020. Just as big of a problem is that it does not forgive any rental payments whatsoever. So even if you do everything right, you’d owe a pile of rent money on January 1, 2021. (You’d owe the piled up rent earlier if you earlier reach the point when can afford to pay rent again.)

So let’s now assume that you could afford to start paying your monthly rent in January 2021. (Or at any point earlier.) What to do with the months of back rent you owe then?

One option: move somewhere else and forever write off (“discharge”) the back rent with a Chapter 7 “straight bankruptcy.” See our last blog post about that, and other possible ways Chapter 7 may help.

But the challenge is if you really want to stay in your rental long term. Chapter 7 does not give you a reliable legal mechanism to pay the unpaid rent. Is there’s a better solution?

The Opportunity Created by Chapter 13

At the heart of a Chapter 13 case is a 3-to-5-year partial-payment plan. You and your bankruptcy lawyer prepare and file this plan at the bankruptcy court. Here’s the court’s official Chapter 13 Plan form.

Just as in Chapter 7, under Chapter 13 you have to choose whether to “accept” or “reject” your rental agreement. If you want to stay in your rental you have to “accept” the agreement and say so in your proposed plan. See Part 6 (starting on page 6, titled Executory Contracts and Unexpired Leases) of the Chapter 13 Plan form.

The crucial benefit under Chapter 13 is that generally you can catch-up on the accrued late rent payments over time. The payment plan that you submit contains the terms of repayment of those accrued rent payments. You could theoretically stretch those catch-up payments over the 3-to-5-year life of your plan.

The real beauty of Chapter 13 is that once your bankruptcy judge formally approves your payment plan, your landlord is forced to accept your repayments terms.

Landlord Challenges to Your Terms

Your landlord could object to the payment terms, before your Chapter 13 plan gets court approval. But you have a number of advantages.

First, your filing of the Chapter 13 stops the landlord from being able to proceed with eviction. This is true even if the national eviction moratorium had expired by then. The “automatic stay” imposed by any bankruptcy filing stops virtually any eviction proceeding in its tracks, at least temporarily. So time is more on your side.

Second, the landlord has the burden of objecting. If your plan shows that you can resume regular rent payments and presents a reasonable schedule for catching up on the late payments, the landlord may decide to accept your proposal. The landlord thereby avoids paying out more attorney fees. Under your proposed plan the landlord gets rent payments every month starting right away. Your plan should give the landlord some confidence in getting the back rent paid. The alternative is losing it all, and maybe another few months of no rent payments if you’re forced out.

Third, if the landlord does object to what you and your bankruptcy lawyer propose, there is often room for compromise. You have a lawyer on your side to look out for your interests. You’d likely be able to amend your Chapter 13 plan to satisfy both sides.  

More Chapter 13 Advantages

The way Chapter 13 works is that usually you pay “general unsecured” debts only to the extent that you can afford to do so. “General unsecured” debts are ones like medical bills, most credit cards, and such. Most likely you will want to pay your rental arrearage ahead of your “general unsecured” debts. Indeed you’ll be forced to if you want to stay in your rental.

The nice thing is that in many situations the money you need to pay for the past due rent reduces the amount you pay on your “general unsecured” debts. That’s because you can only afford to pay a certain amount to all of your debts over the course of your case. Your budget dictates that amount. The catch-up rent in effect comes out of what you’d otherwise have to pay the “general unsecured debts.

Another Chapter 13 advantage is that you can often delay paying certain debts until you’re better able to do so. For example, you may be able to pay less monthly on the back rent for several months, then more later. This may be because you anticipate increase in income, such as when a spouse returns to work. Or it may be because you anticipate a future reduction in expenses, such as paying off a vehicle loan.

Finally, Chapter 13 is flexible in other ways. You’re not necessarily tied into your payment plan forever. Its terms can shift with your changing financial circumstances even after it’s approved by the court. Or if you change your mind about staying in your rental, you can amend the terms of the plan. Or you can even convert into a Chapter 7 case and likely discharge whatever you then owe to the landlord.

 

Does the Automatic Stay During Bankruptcy Apply to Child Support?

September 15th, 2020 at 9:48 am

TX bankrupcy lawyer, Texas bankruptcy attorneyWhen you file for protection under the U.S. Bankruptcy Code, the bankruptcy court will automatically issue a stay that stops all collection activities by creditors. The automatic stay is a court order that prevents creditors from calling you, sending you letters, and otherwise pushing you to pay what you owe them. The stay is meant to be a form of relief that gives you the chance to get organized as you approach your bankruptcy proceedings. If you are subject to a child support order, however, it is important to understand that the automatic stay will not help you with that particular obligation.

How the Automatic Stay Works

Whether you are filing Chapter 7 or Chapter 13 bankruptcy, the bankruptcy code recognizes that you will need time and space to sort out your thoughts and to prepare for the proceedings without creditors bothering you at all hours of the day. The automatic stay is meant to give you that time and space. The stay also serves as the proverbial “line in the sand” as well, meaning that once the stay is issued, collection efforts cannot resume until the bankruptcy proceedings are complete or the creditor obtains the express permission of the bankruptcy court to contact you again. In the meantime, you will not be at risk of foreclosure, eviction, wage garnishments, or even having your utilities shut off.

Child Support Is an Exception

If you currently pay child support, the automatic stay will not help your required payments nor will it prevent collection activities if you are behind on your support obligation. The automatic stay is intended to give you relief, but not at the expense of your child’s best interests. You must continue making your child support payments during the bankruptcy proceedings, or you could be subject to collection efforts by state agencies or the court.

It is also important to note that child support obligations—including obligations for back support—are not eligible to be discharged in Chapter 7 bankruptcy. Regardless of what happens to your other debt, you will still be required to pay your current support amount, as well as any delinquent amounts.

Your child support obligations will not be discharged in 13 bankruptcy either. Child support and other types of “domestic support obligations” are considered high-priority debts, which means they will be at the top of the list of debts to be paid according to your reorganization plan. However, if you keep up with the terms of your plan, the state cannot take action against you during the repayment period, which usually lasts between three and five years.

Speak With a New Braunfels Bankruptcy Attorney

If you have questions about how filing for bankruptcy might be able to help you catch up on your child support obligations, contact an experienced San Antonio bankruptcy lawyer at The Law Offices of Chance M. McGhee today. We will help you find the answers you need as you look to get back your feet financially. Call 210-342-3400 for a free consultation today.

 

Sources:

https://www.thebalance.com/child-support-and-alimony-in-bankruptcy-4154002

https://civil.sog.unc.edu/bankruptcy-and-the-application-of-the-automatic-stay-to-family-law-cases/

Bankruptcy and the Eviction Moratorium

September 14th, 2020 at 7:00 am

  

The CDC’s recent order stopping all U.S. residential evictions gives you a new tool to use with some wise bankruptcy planning. 

 

Last week’s blog post was about a new federal order temporarily stopping certain residential evictions throughout the country. Please see that blog post about which renters and rental properties are covered, and how renters qualify for the moratorium.

If you are a tenant and are considering filing bankruptcy, this eviction moratorium can affect the timing and tactics of your filing. We start addressing that today.   

The Moratorium Ends on December 31, 2020

The most important aspects of the eviction moratorium are that it is temporary and does NOT forgive any rental payments. The “order prevents you from being evicted or removed from where you are living through December 31, 2020.”  However, “[y]ou are still required to pay rent… .”  

The obligation to pay the rent is just delayed. “[A]t the end of this temporary halt on evictions on December 31, 2020, [your] housing provider may require payment in full for all payments not made prior to and during the temporary halt… .” Your “failure to pay” then would make you subject to eviction at that point. 85 Federal Register 55292, 55297.

Note that you would almost certainly then owe more than just the missed rental payments. You also continue to be liable for “fees, penalties, or interest for not paying rent” imposed under your lease agreement. See Declaration, p. 2.

The Bankruptcy Timing Consequences—Chapter 7 “Straight Bankruptcy”

Bankruptcy generally allows you to discharge—permanently write off—debts that you owe at the time you file the bankruptcy. It does not discharge future debts.

So one seemingly straightforward option is to delay filing a Chapter 7 bankruptcy, then file to discharge the accrued rent. Any other contractual fees and penalties could also be discharged. Assuming you qualify for the moratorium, this lets you live rent-free for several months.

The crucial practical question is whether you’d be able to continue living at this rental or would have to move.

The situation is relatively simple if you do move away at that point. You would be liable for any rent or other fees accrued after you and your bankruptcy lawyer file your case. That’s because again the bankruptcy discharge does not cover any obligations accrued after the filing. So you’d have to move before or at the time you file the Chapter 7 case. Or else you’d have to pay rent and any other fees accrued after the date of your bankruptcy filing.  

Staying at Your Rental after Filing a Chapter 7 Case

But could you discharge any pre-filing obligations to your landlord and continue living there by paying all after-filing obligations? There’s a legal answer and a practical one.

The legal answer is very likely “no.”  You have to pay the pre-filing obligations if you want to stay. After filing a Chapter 7 case you have a short time to decide to “accept or reject” the lease agreement. You have 60 days. If you “reject” it, you leave and then usually don’t owe any pre-filing obligations to your landlord. If you “accept” the lease agreement, you have a very limited time to pay any pre-filing obligations. If you don’t accept the lease agreement on time, your landlord can evict you.  Or if you do timely accept your lease but then don’t pay the pre-filing obligations on time, your landlord can also evict you. (See Section 365 of the Bankruptcy Code on unexpired leases, one of its more complicated provisions.)

Notwithstanding all this, under some circumstances you might be able to persuade your landlord to let you stay. We live in crazy times. Your landlord may have multiple renters unable to pay their back rent, and may prefer that you stay. Your bankruptcy filing, in which you’re presumably discharging lots of other debts, will likely make you better able to afford your rent. The landlord may be open to negotiating something you can live with.

Obligation to Make Partial Rental Payments

Relatedly, be aware that to qualify for the eviction moratorium you have to try to make partial rental payments.  You have to certify the following:

I am using best efforts to make timely partial payments that are as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses… 

85 Federal Register 55292, 55297.

The point of this is that it opens you and your bankruptcy lawyer to some creative planning and negotiations. You could agree with your landlord to make partial rent payments during the period before filing bankruptcy (which you could otherwise discharge). In return you or your bankruptcy lawyer could ask for the landlord’s flexibility about payment terms after your bankruptcy filing.  

Or more likely, you use the threat to reject the lease and discharge all the pre-filing debt as leverage. Instead you agree to accept the lease but pay only part of the debt and/or get payment terms you can tolerate.

A Chapter 13 Teaser

As you can see Chapter 7  is quite helpful, used with the eviction moratorium, if you’re leaving the rental property. You live there without paying the rent for months and then discharge that obligation in bankruptcy.

But if you want to stay, Chapter 7 leaves you to a large extent at the mercy of your landlord. You only get a bit of leverage, which may or may not work with your particular landlord.

What if you could legally force your landlord to give you much more time to catch up? What if you had many months to pay the rent not paid during the moratorium? In our next blog we’ll show you how a Chapter 13 “adjustment of debts” case may let you do this.

 

New Federal Eviction Moratorium

September 7th, 2020 at 7:00 am

The Centers for Disease Control and Prevention (CDC) just asserted its COVID-fighting power to stop most residential evictions through 2020. 

 

On Friday, September 4, 2020, a federal order went into effect temporarily stopping certain residential evictions throughout the country. Issued by the Centers for Disease Control and Prevention (“CDC”), it’s titled “Temporary Halt in Residential Evictions To Prevent the Further Spread of COVID-19.”  The legal basis and purpose of the Order is “to temporarily halt residential evictions to prevent the further spread of COVID-19.”

It covers residential rentals, NOT home mortgage foreclosures.

The Renters Covered by this Order

The CDC Order states that any “landlord… shall not evict any covered person from any residential property… during the effective period of the Order.”

Most residential renters unable to pay their rent likely qualify as a “covered person.” To be a “covered person” an individual must meet a number of conditions:

  • Either “(i) expects to earn no more than $99,000 in annual income for Calendar Year 2020 (or no more than $198,000 if filing a joint tax return), (ii) was not required to report any income in 2019 to the U.S. Internal Revenue Service, or (iii) received an Economic Impact Payment (stimulus check) [under] the CARES Act.”
  • Has “used best efforts to obtain all available governmental assistance for rent or housing.”
  • Is “unable to pay the full rent” because of one or more of the following:
    • a “substantial loss of household income
    • a reduction in “hours of work or wages”
    • lay-off
    • “extraordinary [unreimbursed] out-of-pocket medical expenses” (exceeding 7.5% of adjusted annual income)
  • Eviction would likely result in either homelessness “or force the individual to move into and live in close quarters in a new congregate or shared living setting—because the individual has no other available housing options.”

Covers All “Residential Property” through the End of 2020

The Order is very broad, including “any property leased for residential purposes.” This explicitly includes “any house, building, mobile home or land in a mobile home park, or similar dwelling leased for residential purposes… .”  Because this list is inclusive it MAY include other types of rental circumstances not listed (such as a rented houseboat?). “Residential property” does NOT include “any hotel, motel, or other guest house rented to a temporary guest or seasonal tenant.”

The Order is effective from September 7 through December 31, 2020. It could possibly be “extended, modified, or rescinded” at any time.

Renters’ Declaration to Qualify for the Protection

The procedure to take advantage of the eviction moratorium seems to be straightforward. The tenant reviews, signs, and gives the landlord a two-page declaration form. Here is the Declaration as provided by the CDC.

It starts with a quick explanation for how to use the Declaration. It then lists the qualifying conditions listed above (and a couple others discussed below).

Each adult renter included on “the lease, rental agreement, or housing contract should complete” it. Deliver a copy to your landlord, property owner, or whoever has the right to evict.

It must be signed under penalty of perjury. Meaning “you can be prosecuted, go to jail, or pay a fine if you lie, mislead, or omit important information.”

Major Potential Penalties for Noncomplying Landlords

The Order includes serious criminal penalties for landlords which don’t comply. Potential fines range from up to $100,000 and/or a year in jail for individual violators and $200,000 for business violators. If a violation “results in death,” the potential fines are two and a half times higher.

Significant Limitations of the Order

The most important practical problem with this Order is that tenants must still pay the missed rental payments later. Immediately after December 31, 2020 the landlord “may require payment in full for all payments not made.” These include payments missed both before and during the moratorium period. The amount due can also include all “fees, penalties, or interest for not paying rent” allowed under your rental agreement.

Furthermore, even during the moratorium period the tenant must make partial rent payments “as close to full payment as the individual’s circumstances permit.”

Also, careful: evictions can continue during the moratorium for reasons other than nonpayment of rent. Specifically the Order does not stop evictions for:

“(1) Engaging in criminal activity while on the premises;

(2) threatening the health or safety of other residents;

(3) damaging or posing an immediate and significant risk of damage to property;

(4) violating any applicable building code, health ordinance, or similar regulation relating to health and safety; or

(5) violating any other contractual obligation, other than the timely payment of rent or similar housing-related payment (including non-payment or late payment of fees, penalties, or interest).”

Note: the Order does not stop any state or locality from creating a stricter moratorium on residential evictions.

Last thing: the Order does nothing for landlords who need tenant rental payments to pay their own mortgages. Because of prior state and local eviction moratoria, many landlords have already not been receiving rental income for months. The Order essentially passes the economic pain temporarily from tenants to landlords.

This impact on landlords, and the short-term relief for tenants, puts pressure on Congress for a better solution.

 

The Effects of an Income Tax Lien

August 31st, 2020 at 7:00 am

Try to file bankruptcy before a tax lien gets recorded. But if you can’t, here are the effects of a tax lien under Chapter 7 and 13.

 

This blog post continues a series about the smart timing of your bankruptcy filing. (It was interrupted by two blog posts updating federal unemployment benefits.) The last in this series was about how good bankruptcy timing prevents you paying certain income tax interest and penalties. We ended with this: “The effect of a tax lien depends on whether the tax at issue qualifies for discharge, and whether you file a Chapter 7 or 13 case.” That’s today’s important topic.

Bankruptcy Timing and Tax Liens

The recording of a tax lien by the IRS or state often causes extra headaches. So it’s usually better to file your bankruptcy case before you’re hit with a tax lien.

But you may go to see a bankruptcy lawyer until after that’s already happened. Or your lawyer may advise to you wait to file for some tactical reason. That reason may be related to your income tax debt(s). It’s not unusual to delay filing until the tax meets the conditions for discharge (full write-off). While you’re holding off on filing, you run the risk of the IRS/state recording a tax lien.

If you’re waiting to file on the advice of your bankruptcy lawyer, he or she will likely tell you about the risks and potential effects of a tax lien. The following outlines what you may hear.

General Effect of a Tax Lien

The recording of a tax lien gives the IRS/state a security interest on everything you own. Your assets then become collateral on the tax debt.

Actually, where or how the IRS/state records the lien determines the assets that it covers. Usually one tax lien covers your real estate, while another covers your personal property—everything else you own. Look carefully at the wording of the tax lien to see what tax years it covers and what assets it encumbers. These details matter as you and your lawyer determine the effect of the lien(s).

A Tax Lien on a Non-Dischargeable Tax under Chapter 7

Assume you file a Chapter 7 “straight bankruptcy” case and you owe a tax that does not qualify for discharge.

The recording of a tax lien on such a tax does not greatly affect what happens in that bankruptcy case. As discussed in our last tax-related blog post, you’ll have to arrange to pay that tax after completing your bankruptcy. You’ll also have to pay the ongoing interest and penalties.

The tax lien may put more pressure on you to make those payment arrangements. You’ll also want to get reassurances that the IRS/state will not take any other collection actions while you pay as agreed. The lien will also motivate you to pay the tax as fast as possible to get a release of the lien.

You’ll usually go this Chapter 7 direction if it will discharge your other debts so that you can reasonably pay off the tax debt(s).

A Tax Lien on a Non-Dischargeable Tax under Chapter 13

The situation is somewhat similar under an “adjustment of debts” Chapter 13 case. You still have to pay the tax that doesn’t meet the timing and other conditions of discharge. But you do that through your 3-to-5-year Chapter 13 payment plan. This gives you the benefit of not having to make payment arrangements with the IRS/state. The Chapter 13 procedure does that for you.

You just pay your monthly play payment, and your tax debt is incorporated into that. The IRS/state must comply with the “automatic stay,” which prevent all your creditors from taking any collection action against you. At the end of your case you will have paid off the tax. So the IRS/state will release any tax lien related to it.

A pre-existing tax lien in the Chapter 13 context can be meaningful in one way. The tax lien effects the payment of interest and penalties.

In a Chapter 7 case with a nondischargeable income tax you have to pay all interest and penalties. That’s true regardless whether there’s a pre-filing tax lien. The tax lien mostly serves to put more pressure on you to make payment arrangements and pay it off fast.

A Chapter 13 case is different. If there’s no tax lien, you would not have to pay ongoing interest and penalties. You’d likely pay only a portion of the penalties accrued as of the date of filing the Chapter 13 case. Sometimes you’d pay none.

 But with a tax lien, you must generally pay ongoing interest in your Chapter 13 payment plan. That can add how much you must pay into your plan and thus how long your plan takes.  

A Tax Lien on a Dischargeable Tax under Chapter 7

The effect of a tax lien on a tax debt that otherwise qualifies for Chapter 7 discharge can be huge. The Chapter 7 case would usually simply discharge that debt, so you would owe nothing.

But if there’s a prior recorded tax lien, that lien survives the bankruptcy case. The discharge of the tax debt does not legally affect the lien. Then the key issue becomes the value of the assets to which the lien attaches.

If you don’t have any real estate and your other assets are minimal, the IRS/state has less leverage over you. Especially if the tax debt was not large, some tax entities will then voluntarily release the tax lien. Both the tax and the tax lien would then be gone.

But some tax entities are more aggressive. This is more likely if the amount of the dischargeable tax is relatively large. They will leverage their tax lien to require you to pay all or part of the tax debt. They won’t release their lien otherwise.  Sounds unfair considering that the debt is otherwise dischargeable. But that’s the potential effect of the tax lien.

This leveraging is understandably much more likely if the assets to which their tax lien(s) attach are substantial. And in particular, this is true if that asset is equity in your home. You could be made to pay an entire tax debt that otherwise qualifies for discharge because of a tax lien.

So there’s a lot of uncomfortable ambiguity when you have tax lien on a dischargeable tax in Chapter 7.

A Tax Lien on a Dischargeable Tax under Chapter 13

A lot of this ambiguity is resolved in a Chapter 13 case. That’s because there’s an efficient procedure for determining the effect of a tax lien.

You and your bankruptcy lawyer will propose the value of assets that are encumbered by the tax lien. That’s done in the Chapter 13 plan you file with the bankruptcy court. You’re effectively stating what you believe to be the practical value of that tax lien, and thus the amount you’ll pay.

The IRS/state can object to this proposed treatment or not. If it objects, the value and amount you pay is usually negotiated, or if necessary decided by the bankruptcy judge.

Or, as is often the case, the IRS/state does not object. That often happens if what you and your bankruptcy lawyer propose is reasonable. Next, whatever you proposed becomes the court-approved plan. Assuming you pay off the plan as approved, that will take care of the IRS/state. Then at the end of the case the judge will discharge the remaining debt. With the debt gone, the IRS/state will then release the tax lien(s).

 

Call today for a FREE Consultation

210-342-3400

Facebook Blog
Back to Top Back to Top